CONSCIOUS of the fact that international factoring has a
significant role to play in the development of international trade,

RECOGNISING therefore the importance of adopting uniform rules to
provide a legal framework that will facilitate international
factoring, while maintaining a fair balance of interests between
the different parties involved in factoring transactions,

1 . - This Convention governs factoring contracts and assignments
of receivables as described in this Chapter.

2 . - For the purposes of this Convention, "factoring contract"
means a contract concluded between one party (the supplier) and
another party (the factor) pursuant to which:

(a) the supplier may or will assign to the factor receivables
arising from contracts of sale of goods made between the supplier
and its customers (debtors) other than those for the sale of goods
bought primarily for their personal, family or household use;

(b) the factor is to perform at least two of the following
functions:

- finance for the supplier, including loans and advance payments;

- maintenance of accounts (ledgering) relating to the receivables;

- collection of receivables;

- protection against default in payment by debtors;

(c) notice of the assignment of the receivables is to be given to
debtors.

3 . - In this Convention references to "goods" and "sale
of goods" shall include services and the supply of services.

4 . - For the purposes of this Convention:

(a) a notice in writing need not be signed but must identify the
person by whom or in whose name it is given;

(b) "notice in writing" includes, but is not limited to,
telegrams, telex and any other telecommunication capable of being
reproduced in tangible form;

(c) a notice in writing is given when it is received by the
addressee.

Article 2

1 . - This Convention applies whenever the receivables assigned
pursuant to a factoring contract arise from a contract of sale of
goodsbetween a supplier and a debtor whose places of business are
in different States and:

(a) those States and the State in which the factor has its place of
business are Contracting States; or

(b) both the contract of sale of goods and the factoring contract
are governed by the law of a Contracting State.

2 . - A reference in this Convention to a party's place of business
shall, if it has more than one place of business, mean the place of
business which has the closest relationship to the relevant
contract and its performance, having regard to the circumstances
known to or contemplated by the parties at any time before or at
the conclusion of that contract.

Article 3

1 . - The application of this Convention may be excluded:

(a) by the parties to the factoring contract; or

(b) by the parties to the contract of sale of goods, as regards
receivables arising at or after the time when the factor has been
given notice in writing of such exclusion.

2 . - Where the application of this Convention is excluded in
accordance with the previous paragraph, such exclusion may be made
only as regards the Convention as a whole.

Article 4

1 . - In the interpretation of this Convention, regard is to be had
to its object and purpose as et forth in the preamble, to its
international character and to the need to promote uniformity in
its application and the observance of good faith in international
trade.

2 . - Questions concerning matters governed by this Convention
which are not expressly settled in it are to be settled in
conformity with the general principles on which it is based or, in
the absence of such principles, in conformity with the law
applicable by virtue of the rules of private international law.

(a) a provision in the factoring contract for the assignment of
existing or future receivables shall not be rendered invalid by the
fact that the contract does not specify them individually, if at
the time of conclusion of the contract or when they come into
existence they can be identified to the contract;

(b) a provision in the factoring contract by which future
receivables are assigned operates to transfer the receivables to
the factor when they come into existence without the need for any
new act of transfer.

Article 6

1 . - The assignment of a receivable by the supplier to the factor
shall be effective notwithstanding any agreement between the
supplier and the debtor prohibiting such assignment.

2 . - However, such assignment shall not be effective against the
debtor when, at the time of conclusion of the contract of sale of
goods, it has its place of business in a Contracting State which
has made a declaration under Article 18 of this Convention.

3 . - Nothing in paragraph 1 shall affect any obligation of good
faith owed by the supplier to the debtor or any liability of the
supplier to the debtor in respect of an assignment made in breach
of the terms of the contract of sale of goods.

Article 7

A factoring contract may validly provide as between the parties
thereto for the transfer, with or without a new act of transfer, of
all or any of the supplier's rights deriving from the contract of
sale of goods, including the benefit of any provision in the
contract of sale of goods reserving to the supplier title to the
goods or creating any security interest.

Article 8

1 . - The debtor is under a duty to pay the factor if, and only if,
the debtor does not have knowledge of any other person's superior
right to payment and notice in writing of the assignment:

(a) is given to the debtor by the supplier or by the factor with
the supplier's authority;

(b) reasonably identifies the receivables which have been assigned
and the factor to whom or for whose account the debtor is required
to make payment; and

(c) relates to receivables arising under a contract of sale of
goods made at or before the time the notice is given.

2 . - Irrespective of any other ground on which payment by the
debtor to the factor discharges the debtor from liability, payment
shall be effective for this purpose if made in accordance with the
previous paragraph.

Article 9

1 . - In a claim by the factor against the debtor for payment of a
receivable arising under a contract of sale of goods the debtor may
set up against the factor all defences arising under that contract
of which the debtor could have availed itself if such claim had
been made by the supplier.

2 . - The debtor may also assert against the factor any right of
set-off in respect of claims existing against the supplier in whose
favour the receivable arose and available to the debtor at the time
a notice in writing of assignment conforming to Article 8(1) was
given to the debtor.

Article 10

1 . - Without prejudice to the debtor's rights under Article 9,
non-performance or defective or late performance of the contract of
sale of goods shall not by itself entitle the debtor to recover a
sum paid by the debtor to the factor if the debtor has a right to
recover that sum from the supplier.

2 . - The debtor who has such a right to recover from the supplier
a sum paid to the factor in respect of a receivable shall
nevertheless be entitled to recover that sum from the factor to the
extent that:

(a) the factor has not discharged an obligation to make payment to
the supplier in respect of that receivable; or

(b) the factor made such payment at a time when it knew of the
supplier's non-performance or defective or late performance as
regards the goods to which the debtor's payment relates.

1 . - This Convention is open for signature at the concluding
meeting of the Diplomatic Conference for the Adoption of the Draft
Unidroit Conventions on International Factoring and International
Financial Leasing and will remain open for signature by all States
at Ottawa until 31 December 1990.

2 . - This Convention is subject to ratification, acceptance or
approval by States which have signed it.

3 . - This Convention is open for accession by all States which are
not signatory States as from the date it is open for signature.

4 . - Ratification, acceptance, approval or accession is effected
by the deposit of a formal instrument to that effect with the
depositary.

Article 14

1 . - This Convention enters into force on the first day of the
month following the expiration of six months after the date of
deposit of the third instrument of ratification, acceptance,
approval or accession.

2 . - For each State that ratifies, accepts, approves, or accedes
to this Convention after the deposit of the third instrument of
ratification, acceptance, approval or accession, this Convention
enters into force in respect of that State on the first day of the
month following the expiration of six months after the date of the
deposit of its instrument of ratification, acceptance, approval or
accession.

Article 15

This Convention does not prevail over any treaty which has already
been or may be entered into.

Article 16

1 . - If a Contracting State has two or more territorial units in
which different systems of law are applicable in relation to the
matters dealt with in this convention, it may, at the time of
signature, ratification, acceptance, approval or accession, declare
that this Convention is to extend to all its territorial units or
only to one or more of them, and may substitute its declaration by
another declaration at any time.

2 . - These declarations are to be notified to the depositary and
are to state expressly the territorial units to which the
Convention extends.

3 . - If, by virtue of a declaration under this article, this
Convention extends to one or more but not all of the territorial
units of a Contracting State, and if the place of business of a
party is located in that State, this place of business, for the
purposes of this Convention, is considered not to be in a
Contracting State, unless it is in a territorial unit to which the
Convention extends.

4 . - If a Contracting State makes no declaration under paragraph
1, the Convention is to extend to all territorial units of that
State.

Article 17

1 . - Two or more Contracting States which have the same or closely
related legal rules on matters governed by this Convention may at
any time declare that the Convention is not to apply where the
supplier, the factor and the debtor have their places of business
in those States. Such declarations may be made jointly or by
reciprocal unilateral declarations.

2 . - A Contracting State which has the same or closely related
legal rules on matters governed by this Convention as one or more
non-Contracting States may at any time declare that the Convention
is not to apply where the supplier, the factor and the debtor have
their places of business in those States.

3 . - If a State which is the object of a declaration under the
previous paragraph subsequently becomes a Contracting State, the
declaration made will, as from the date on which the Convention
enters into force in respect of the new Contracting State, have the
effect of a declaration made under paragraph 1, provided that the
new Contracting State joins in such declaration or makes a
reciprocal unilateral declaration.

Article 18

A Contracting State may at any time make a declaration in
accordance with Article 6(2) that an assignment under Article 6(1)
shall not be effective against the debtor when, at the time of
conclusion of the contract of sale of goods, it has its place of
business in that State.

Article 19

1 . - Declarations made under this Convention at the time of
signature are subject to confirmation upon ratification, acceptance
or approval.

2 . - Declarations and confirmations of declarations are to be in
writing and to be formally notified to the depositary.

3 . - A declaration takes effect simultaneously with the entry into
force of this Convention in respect of the State concerned.
However, a declaration of which the depositary receives formal
notification after such entry into force takes effect on the first
day of the month following the expiration of six months after the
date of its receipt by the depositary. Reciprocal unilateral
declarations under Article 17 take effect on the first day of the
month following the expiration of six months after the receipt of
the latest declaration by the depositary.

4 . - Any State which makes a declaration under this Convention may
withdraw it at any time by a formal notification in writing
addressed to the depositary. Such withdrawal is to take effect on
the first day of the month following the expiration of six months
after the date of the receipt of the notification by the
depositary.

5 . - A withdrawal of a declaration made under Article 17 renders
inoperative in relation to the withdrawing State, as from the date
on which the withdrawal takes effect, any joint or reciprocal
unilateral declaration made by another State under that article.

Article 20

No reservations are permitted except those expressly authorised in
this Convention.

Article 21

This Convention applies when receivables assigned pursuant to a
factoring contract arise from a contract of sale of goods concluded
on or after the date on which the Convention enters into force in
respect of the Contracting States referred to in Article 2(1)(a),
or the Contracting State or States referred to in paragraph 1(b) of
that article, provided that:

(a) the factoring contract is concluded on or after that date; or

(b) the parties to the factoring contract have agreed that the
Convention shall apply.

Article 22

1 . - This Convention may be denounced by any Contracting State at
any time after the date on which it enters into force for that
State.

2 . - Denunciation is effected by the deposit of an instrument to
that effect with the depositary.

3 . - A denunciation takes effect on the first day of the month
following the expiration of six months after the deposit of the
instrument of denunciation with the depositary. Where a longer
period for the denunciation to take effect is specified in the
instrument of denunciation it takes effect upon the expiration of
such longer period after its deposit with the depositary.

Article 23

1 . - This Convention shall be deposited with the Government of
Canada.

2 . - The Government of Canada shall:

(a) inform all States which have signed or acceded to this
Convention and the President of the International Institute for the
Unification of Private Law (Unidroit) of:

(i) each new signature or deposit of an instrument of ratification,
acceptance, approval or accession, together with the date thereof;

(ii) each declaration made under Articles 16, 17 and 18;

(iii) the withdrawal of any declaration made under Article 19(4);

(iv) the date of entry into force of this Convention;

(v) the deposit of an instrument of denunciation of this Convention
together with the date of its deposit and the date on which it
takes effect;

(b) transmit certified true copies of this Convention to all
signatory States, to all States acceding to the Convention and to
the President of the International Institute for the Unification of
Private Law (Unidroit).

IN WITNESS WHEREOF the undersigned plenipotentiaries, being duly
authorised by their respective Governments, have signed this
Convention.

DONE at Ottawa, this twenty-eighth day of May, one thousand nine
hundred and eighty-eight, in a single original, of which the
English and French texts are equally authentic.